Japanese Yen and Aussie Dollar Forecasts: Trade and Central Bank Pivots in Focus

Japan Economy Under the Spotlight As Trade Jitters Pressure USD/JPY

Japan’s economy will be in focus on Monday, May 26, influencing the Bank of Japan rate path and USD/JPY trends. According to preliminary data, the Leading Economic Index dropped from 108.2 in February to 107.7 in March. The Index reflects business and consumer sentiment, giving the BoJ insights into business investment and household spending, both crucial to inflation and overall economic momentum.

A downward revision may temper bets on a Q3 2025 BoJ rate hike, potentially lifting USD/JPY. Conversely, a higher print could revive speculation of a Q3 hike, especially after April’s hotter-than-expected core inflation. A more hawkish BoJ stance may drag the USD/JPY lower.

Economists had already pared back Q3 rate hike bets ahead of Friday’s inflation figures due to escalating tariff concerns. A Reuters poll (May 7–13) showed:

• 67% of economists (39 of 58) anticipate no policy change in Q3, up from 36% in April.
• 52% forecast a 25-basis-point rate hike in 2025.

Trade developments also remain a key driver. USD/JPY dropped 1.01% on Friday after President Trump threatened a 50% tariff on EU imports, boosting demand for safe-haven assets like the Yen.

USD/JPY Daily Outlook: Fed Speakers in Focus

Later in the session, Fed speakers will influence US dollar demand and USD/JPY trends. Support for a Q3 2025 Fed rate cut could weigh on the US dollar and send USD/JPY toward the 140.309 support level. On the other hand, calls to delay rate cuts to assess inflationary impacts from tariffs may drive the pair toward the May 20 high of 145.507.

USD/JPY: Key Scenarios to Watch

• Bearish USD/JPY Scenario: Rising trade tensions, strong Japanese economic data, or dovish Fed rhetoric could drag USD/JPY toward 140.309.
• Bullish USD/JPY Scenario: Easing trade friction, weak Japanese economic indicators, or hawkish Fed cues may lift USD/JPY toward 145 and potentially the 50-day EMA.

See today’s full USD/JPY forecast with chart setups and trade ideas.

AUD/USD in Focus: US-China Trade Developments

On May 26, US-China trade headlines and policy updates from Beijing will influence AUD/USD price action. On Sunday, May 25, CN Wire reported that Chinese state media emphasized the unresolved nature of the US-China trade conflict, warning that talks would be “protracted and arduous.”

The commentary cited US delay tactics and the risk of renewed escalation if US political and economic pressures ease. The report concluded that China must prepare for prolonged negotiations and a sustained confrontation.

A prolonged trade war may impact Aussie trade terms, given China accounts for one-third of Australian exports. With a trade-to-GDP ratio above 50%, weaker demand from China could pressure the RBA into adopting a more dovish stance.

RBA Governor Michele Bullock recently warned that a worsening trade war could push Australia into recession. She noted:

“Australia’s economy could easily be compromised if a trade war between the US and China escalates… The market path is reflecting a possibility of a really bad outcome, pointing to a lower RBA cash rate.”

Rising recession fears and a more dovish RBA rate path may weigh on AUD/USD. However, any stimulus out of Beijing could cushion the blow.

AUD/USD: Key Scenarios to Watch

• Bearish Aussie dollar Scenario: Renewed US-China tensions, Beijing withholds fresh stimulus, or dovish RBA cues may send AUD/USD toward the 200-day EMA.
• Bullish Aussie dollar Scenario: Easing US-China trade tensions, Beijing stimulus, or hawkish RBA signals could send the pair toward the May 14 high of $0.65008.

Click here for a more comprehensive analysis of AUD/USD trends and trade data insights.

Aussie Dollar Daily Outlook: Fed Impact

Later today, US monetary policy will also affect AUD/USD. Hawkish Fed rhetoric may widen the US-Aussie interest rate differential, potentially pulling AUD/USD toward the 200-day EMA. Meanwhile, dovish cues favoring a Q3 Fed rate cut would narrow the rate differential, sending the pair toward $0.65008.

Traders should also monitor US fiscal risks and global trade rhetoric. On May 23, AUD/USD rose 1.29% to $0.64914 as markets digested Trump’s tariff threat on EU imports and growing concerns over US debt levels.

Key Market Drivers to Watch Today:

• USD/JPY: US-Japan trade talks, Japanese economic data, and BoJ signals.
• USD/JPY and AUD/USD: Fed speeches, US economic data, and global trade headlines.
• AUD/USD: US-China relations, RBA commentary, and Beijing’s policy stance.

For more in-depth analysis, review today’s USD/JPY and AUD/USD trading setups in our latest reports.